Market Pulse: Give to charities, save on taxes
Special to the Tribune
I’m not a CPA, nor do I want to be. I’m an investment adviser who doesn’t pretend to be a tax expert. But I do know that many retirees don’t take advantage of a way to save on taxes by making charitable donations.
Even if you itemized deductions in the past, you probably aren’t doing so now. That’s because the Tax Cuts and Jobs Act increased the standard deduction from $6,500 to $12,950 for single filers and $13,000 to $25,900 for married taxpayers that file jointly (for year 2022). About 90% of taxpayers use the standard deduction instead of itemizing. For those 90%, charitable donations of $600 or less can be deducted but nothing more (for a joint return).
If you are over the age of 72 and have a traditional IRA, then you are required to take annual distributions. Those distributions count as ordinary income. Instead of directly donating to a charity, a better method is a “qualified charitable distribution.”
Under a qualified charitable distribution the account owner sends the distribution directly from the IRA to the qualified charity. The donation counts toward the required minimum distribution but isn’t taxed as income. To make such a distribution you should talk to your financial adviser or IRA custodian. For a QCD, the custodian will either send the money directly to the charity on your behalf or will send you a check payable to the charity. Make sure the money isn’t deposited to your personal account.
There is a $100,000 cap on QCDs and there is no reason to do a QCD from a Roth IRA as distributions are already tax-free. Keep in mind the distribution needs to go to a qualified 501(c)3 charity. Sorry, it doesn’t work to send money to your beneficiaries.
On another note, new life expectancy tables that are used to determine required minimum distributions go into effect this year. Don’t calculate distributions based on an outdated divisor. Instead, use a minimum required distribution calculator such as the one found at Investor.gov. Click “Financial Tools & Calculators.”
Note: It’s too late for your 2021 return so focus on 2022 but you must make your distribution before year end. Qualified charitable distributions are a good way for some IRA owners to reduce their tax burden while helping their favorite cause. Best of all, charitable distributions can occur year after year.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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